Nike’s principal business activity involves the design, development, and worldwide marketing of high-quality footwear, apparel, equipment, and accessory products for serious and recreational athletes. Almost 25,000 employees work for the firm. Nike boasts the largest worldwide market share in the athletic-footwear industry and a leading market share in sports and athletic apparel.
This case uses Nike’s financial statements and excerpts from its notes to review important concepts underlying the three principal financial statements (balance sheet, income statement, and statement of cash flows) and relationships among them. The case also introduces tools for analyzing financial statements.
Interpreting Financial Statement Relationships
a. Exhibit 1.35 presents common-size and percentage change income statements for Nike for 2007, 2008, and 2009. What are the likely reasons for the higher net income/sales revenue percentages for Nike between 2007 and 2008? What are the likely reasons for the lower net income/sales revenue percentages for Nike between 2008 and 2009?
b. What are the likely reasons for the decrease in the cost of goods sold to sales percentages between 2007 and 2009?
c. What are the likely reasons for the increase in the selling and administrative expenses to sales percentages between 2007 and 2009?
d. Exhibit 1.36 presents common-size and percentage change balance sheets for Nike at the end of 2007, 2008, and 2009. What is the likely explanation for the relatively small percentages for property, plant, and equipment?
e. What is the likely explanation for the relatively small percentages for notes payable and long-term debt?
aa. What is the likely explanation for the small decreases in property, plant, and equipment for Nike for 2008 and 2009?
bb. Refer to the statement of cash flows for Nike in Exhibit 1.33. Cash flow from operations exceeded net income during all three years. Why?
cc. How has Nike primarily financed its acquisitions of property, plant, and equipment during the three years?
dd. What are the likely reasons for the repurchases of common stock during the three years?
ee. The dividends paid by Nike increased each year ($343.7 million in 2007, $412.9 million in 2008, and $466.7 million in 2009). Given that Nike repurchased its stock each year, what is the likely explanation for the increasing amount of dividends?